In a move that will result in substantial debt reduction for the Essar Group, banks led by State Bank of India (SBI) and ICICI Bank on Friday cleared the decks for Essar Oil’s Rs85,000-crore stake sale to Rosneft and the investment consortium led by Trafigura and UCP, sources said. The sources added that banks have approved and authorised the release of shares of Essar to facilitate closure of the stake sale. Bloomberg reported on Thursday that Rosneft chief executive officer Igor Sechin said at the Moscow-based company’s annual general meeting that the legal decision on Rosneft’s guaranteed entry in Essar was formalised. “After some technical procedures are done, we’ll consider the deal closed,” he added. The total debt of the Essar Group is estimated at Rs1.17 lakh crore with Essar Oil owing lenders approximately Rs30,000 crore and Essar Steel owing around Rs44,000 crore. Essar Power has borrowings of Rs20,000 crore while Essar Global Fund has close to Rs23,500 crore. The deal, announced in October last year, was held up after a few state-owned banks and Life Insurance Corporation (LIC) sought clearance of their dues in order to sign a no objection certificate (NOC).
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The all-cash deal encompasses Essar Oil’s 20-million-tonne refinery at Vadinar in Gujarat, and its network of over 3,500 retail outlets. The refinery, which accounts for 9% of India’s total refining output, is supported by a 1,010 MW captive power plant and a 58-mt deep draft port that helps in importing crude and exporting finished products for the refinery. The deal was to acquire a 98% stake in Essar Oil for Rs72,800 crore and to pay Rs13,300 crore for the acquisition of Vadinar Port.
The deal was expected to be positive for lenders since the Essar Group might invest a portion of the cash as equity in Essar Steel or Essar Power to deleverage them. The Essar Group, analysts believe, would likely repay the debt of Essar Global Holding with Rs23,500 crore of debt. SBI chairman Arundhati Bhattacharya had told a news channel that it was a good deal since the Essar Group would make money on the the sale of equity. “The Essar Oil debt will also now move to another organisation, which will probably be a better risk given the depth of operations,” she added. ICICI Bank MD and CEO Chanda Kochhar had also said that ultimately, of course, Essar Oil’s debt will become a non-Essar Group exposure and so, in a way, almost a little over 50% of ICICI Bank’s exposure to the Essar Group either gets paid or gets transferred to a non-Essar company. While most private banks have sold their Essar Steel exposure to asset reconstruction companies taking a haircut of more than 50%, public sector banks have declared Essar Steel a non-performing asset.